Trick to Separate Business from Personal Expenses in QuickBooks
Accountants always say not to mix personal and business expenses. Ideally, small businesses should have a business credit card in addition to a business checking account. However, in this day and age where points, airline miles, and cash back incentives reign supreme, it is hard to resist using certain cards for different types of spend. For example, there may be a card where a minimum total spend for the year qualifies for elite status on an airline and using that card for both personal and business expenses helps reach that milestone faster.
Of course, small business owners want to be careful not to include any personal expenses in business deductions. And misclassifying these transactions in QuickBooks, other than an Owner’s Draw or Loan to Shareholder, can have negative tax implications.
Here’s the trick
Add the credit card account to QuickBooks in Banking, or Bank Feed in desktop.
Exclude all personal transactions that are downloaded.
Pay off the “In QuickBooks” balance in full periodically by making a payment from the business checking account to the credit card account.
Reconcile the account, after the payment posts, to a zero ending balance.
Even if you pay off the credit card in full each month, it is important to pay the business portion separately and then make another payment from a personal checking account for the difference.
Don’t forget receipts
The IRS requires that receipts for all business deductions be kept for a minimum of 7 years. Unfortunately, most small businesses don’t save receipts and if they do, they are not organized in way that would help in an audit. Ideally, each expense would have a receipt attached to it in QuickBooks so that it can easily be found later. Dext, previously Receipt Bank is not only a great way to achieve this, but it can help in the process of separating business from personal expenses, too.
